A.M. Best Affirms Credit Ratings of The United Kingdom Mutual War
Risks Association Ltd.

May 04, 2018 08:47 AM Eastern Daylight Time

LONDON--(BUSINESS WIRE)--A.M. Best has affirmed the Financial Strength Rating of A-
(Excellent) and the Long-Term Issuer Credit Rating of “a-” of The
United Kingdom Mutual War Risks Association Ltd. (UK War Risks or
the Club) (United Kingdom). The outlook of these Credit Ratings
(ratings) remains stable.

The ratings reflect UK War Risks’ balance sheet strength, which A.M.
Best categorises as very strong, as well as its adequate operating
performance, limited business profile and appropriate enterprise risk
management.

UK War Risks’ balance sheet strength is underpinned by risk-adjusted
capitalisation that is at the strongest level, as measured by Best’s
Capital Adequacy Ratio (BCAR). Offsetting rating factors include the
Club’s small capital base and its material dependence on reinsurance. UK
War Risks cedes almost all of its underwriting risk to third-party
reinsurers, retaining only a small deductible on one part of its
reinsurance programme. The Club benefits from an excellent and
diversified reinsurance panel, which somewhat offsets its high exposure
to counterparty credit risk.

UK War Risks has an adequate, albeit volatile, earnings track record, as
demonstrated by a five-year average return on equity of 4% (2014-2018).
Operating results are expected to remain dependent on investment
performance, which has exhibited volatility due to the Club’s
significant exposure to equity markets. Although UK War Risks benefits
from an excellent loss record, it is exposed to the potentially
disruptive upward movement in the cost of reinsurance.

The Club has an established business profile as a specialist underwriter
of war risk insurance for ships. However, the Club’s business profile is
limited due to its relatively small size, concentrated membership base
and focus on a small underwriting niche.